By Krista Hughes
WINCHESTER, Va. Feb 4 The U.S. Federal Reserve
will probably keep reducing monthly asset purchases at its
current pace and it would be hard to make the case for a pause
in the tapering process, a senior Fed official said on Tuesday.
Richmond Federal Reserve President Jeffrey Lacker said U.S.
stocks had performed well looking at the last year and recent
moves likely reflected a downward adjustment in expectations for
Importantly, moves in financial markets did not seem to have
affected the outlook for jobs, a key benchmark for future policy
at the U.S. central bank, which has started to trim back its
policy stimulus by reducing asset purchases by $10 billion at
each of its last two policy meetings.
"I think the hurdle ought to remain pretty high for pausing
in tapering," Lacker, who has long opposed the aggressive
stimulus, told reporters.
"We linked the asset purchase programs to significant
improvement in the outlook for labor market conditions, that has
definitely occurred, and I don't see financial market
developments as having affected the outlook for labor market
conditions materially at this point."
He declined to comment on what kind of scenario might pass
The Fed trimmed its monthly asset-purchase program to $65
billion per month last week and policymakers will not meet again
until March. Lacker said he expected the current pace of a $10
billion reduction every meeting to continue and played down the
chance of a bigger move.
Weak U.S. data pushed the benchmark S&P 500 index into its
worst single-day drop in seven months on Monday and MSCI's
benchmark index for emerging market stocks hit its
lowest level since August.
Lacker, who is among the more hawkish of the Fed's 17
current policymakers, said markets might be coming in line with
his view that economic growth would slow this year to "a little
above" 2 percent, citing muted spending by consumers and
businesses and modest expected labor productivity.
"I think maybe now (they are) revising down their sense of
how much momentum the second half is really providing us," he
said in response to a question.
"I wouldn't call it 'turmoil' yet, we've still got a great
stock market looking back over the last year."
Lacker's growth forecast is on the low end of the range of
predictions, of between 2.2 percent and 3.3 percent GDP growth,
made in December by Fed policymakers. New forecasts are also due
In a speech at Shenandoah University, Lacker also predicted,
as most Fed officials have, that today's low inflation will rise
to the Fed's 2-percent goal over the next year or two.
The central bank has said it will keep benchmark interest
rates near zero well past the time unemployment falls below 6.5
percent, especially if inflation remains below target.
The jobless rate has now fallen to 6.7 percent and Lacker
said the so-called forward guidance would have to be rejigged as
and when that threshold was reached.
"We will have to reformulate it and provide some qualitative
way of providing an assessment of what time horizon we think is
most likely," said Lacker, who does not vote on monetary policy
"I'd point out that the SEP (summary of economic
projections) provides a rich portrayal of the array of views
within the committee and even if we said nothing the SEP would
be pretty informative."
Earlier, he told the audience there were various factors at
play determining the timing of the first rate rise, noting he
personally saw a move in early 2015.
"If we do see growth pick up to 3 percent, 2-3/4 percent on
a sustained basis over three or four quarters, I think that
would be a clear sign that increasing rates would be needed," he
said, although an earlier, pre-emptive hike might also be
"I think you are likely to hear communication from the
Federal Reserve before it happens indicating that it's likely to
happen soon, so I doubt we are going to surprise you," Lacker